Hi, Please could I have help with understanding part (i) to this question. From the notes I attempted to solve this using d < e^r < u, however the solution is di < 1+r < ui. I'm struggling to get my head round this and hoped for an explanation. Thanks
Hi You're correct to start with d < e^r < u, but this is only true when the interest rate r is continuously compounded. In this question the interest rate is the effective rate (let's call that i). Therefore you have to start with d < 1+i < u instead. I think that will help. Let me know if not. Thanks
